San Miguel Corp. must pay for the added cost to consumers once its energy arm SMC Global Power withdraws from two power supply agreements with distributor Manila Electric Co. on 4 October.

Consumer group Power for People said that the most likely outcome of the pullout of 1 gigawatt of electricity from the Ilijan and Sual generating plants of SMC Global Power is for Meralco to secure emergency PSAs.

"Emergency PSAs are, in nature, higher in rate. Providers usually charge higher because they negotiate with the thought that the supply is extremely needed."

"The emergency PSA's cost should be approximated to the penalties that will be imposed as a result of the pullout of San Miguel," according to P4P convenor Gerry Arances.

"SMC Global Power must have the responsibility to bear the consequences of its power plants' withdrawal," Arances noted.

Based on the computation of industry experts, a unilateral termination of the PSA will result to SMC Global Power being declared in default that requires SMC Global Power to pay upfront P255 billion which is the estimated cost of the PSA in the remaining seven years of its term.

SMC Global Power's plan to rescind the PSAs will cost the conglomerate an arm and a leg.

The huge penalty has to be paid to power distributor Manila Electric Co. but civic electricity watchdogs said the amount must be used to ensure that consumers will not be penalized by SMC's decision.

Costly event

A copy of the PSA showed that it contained "Termination upon Event of Default" provision of its supply deal with Meralco obtained by the Daily Tribune shows that a unilateral pullout from the PSA will make SMC Global Power liable.

Based on the terms in the PSA, the agreed damages "upon the occurrence of a Power Supplier Event of Default" or when SMC Global Power failed to deliver on its commitments, "Meralco shall be entitled to liquidated damages, in lieu of all other damages to which it may be entitled" in the amount of P100,000 per megawatt per day of the contract capacity for the remaining term of the agreement."